News of Note
Income Tax Severed Letters 26 November 2025
Email this ContentThis morning's release of two severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA finds that gain realized by a tenant under a rent-to-own program would not qualify for the principal residence exemption
Under a program for a prospective homebuyer to start living in a residence while making contributions towards potential ownership of the property:
- The registered owner would enter into the “Agreement” with an individual tenant (the “Resident”) for the latter to occupy a condo unit (the “Property”), with the option to purchase the Property.
- Under the Agreement, the Resident would pay the owner amounts within a specified range based on the fair market value of the Property in order to obtain an investment with respect to the Property (the “Interest”).
- The amount paid by the Resident each month to the owner would include the market rent for a comparable unit and amounts chosen by the Resident subject to a specified minimum, to be added to the Interest.
- The Resident would occupy Property for a lease term, which was subject to automatic renewal until the option was exercised.
- If the Resident exercised the option to acquire the Property (at an exercise price equalling its current FMV), the Agreement would be terminated, and the Resident would be paid an amount equal to the value of the Interest at that point in time, which would be applied as a down payment towards the acquisition of the Property.
- Where the Agreement was terminated for other reasons, a lesser percentage of the value of the Interest might be paid.
Could the principal residence exemption be claimed by the Resident in relation to a gain realized on repayment of the Interest?
CRA indicated that the payout could not be in respect of the Resident’s beneficial ownership of the Property given that the Resident did not enjoy and assume all the attributes of ownership of the Property. For example, there was no ability to mortgage it, or rent it out or make structural changes or to transfer the Interest without prior consent.
Furthermore, it also would not be for the disposition of the Resident’s leasehold Interest but rather was paid in respect of the value of the Interest.
In addition, on entering into the Agreement, the Resident would not be considered to have acquired a qualifying home for purposes of the Home Buyers’ Plan, although this requirement could be satisfied by exercising the option.
Neal Armstrong. Summaries of 20 November 2023 External T.I. 2022-0937331E5 under s. 54 – principal residence, s. 146.01(1) - regular eligible amount, and General Concepts - Ownership.
We have translated 7 more CRA interpretations
We have translated a CRA interpretation released last week and a further 6 CRA interpretations released in January of 2000. Their descriptors and links appear below.
These are additions to our set of 3,380 full-text translations of French-language Technical Interpretation and Roundtable items (plus some ruling letters) of the Income Tax Rulings Directorate, which covers all of the last 25 ½ years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
Lachance - Quebec Court of Appeal applies the “presumption of coherence” regarding the Quebec equivalent of ETA s. 323 and ITA s. 227.1
Although s. 24.0.1 of the Quebec Tax Administration Act was similar to ETA's s. 323 and ITA s. 227.1, the taxpayer argued that some wording differences were sufficient to establish that the assessment of him under s. 24.0.1, as the director of a corporation that had failed to remit QST, was statute-barred because such personal assessment was made more than three years after the assessment of the corporation for the QST.
In rejecting this submission, the Court referred to “the presumption of coherence between tax laws that contain substantially the same regime and do not present fundamental differences” – and then referred to the finding in Jarrold that the only limitation period in ETA s. 323 is the two-year period in s. 323(5) running from when the individual ceased to be a director.
Neal Armstrong. Summary of Lachance v. Agence du revenu du Québec, 2025 QCCA 1476 under ETA s. 323(5).
CRA indicates that the lack of income on bitcoins suggested that they might be acquired on income account
In 2014, a Canadian resident acquired from an unrelated insolvent foreign corporation the right to receive 740 bitcoins in consideration for a payment of 75 bitcoins. Ten years later, after the winding-up process for the non-resident corporation was completed, the taxpayer received 115.2602 bitcoins in settlement of the entitlement to receive 740 bitcoins.
Regarding whether this transaction was an adventure in the nature of trade, CRA indicated that Meronek and Dally (finding that debts, owing by corporations in financial difficulty, that were acquired for nominal amounts gave rise to profits from adventures in the nature of trade on their repayment as they did not have the characteristics of an investment) “were worth mentioning.”
Here, CRA noted as relevant that the right to receive the bitcoins was not likely to generate income during the period of ownership. Additionally, the 10-year holding period might have corresponded to the time required to complete the winding-up process rather than reflecting an intention to retain the right in the long term.
However, CRA did not conclude as to whether the gains were business income or capital gains.
Neal Armstrong. Summaries of 10 September 2025 External T.I. 2025-1070171E5 F under s. 9 – capital gain v. profit – crypto, and s. 54 – ACB.
CRA confirms that forest management generally does not generate income from property, but this may not obtain where the only revenue is from stumpage and carbon offset credits
CRA stated that it generally would not consider the principal purpose of a business engaged in forest management activities (e.g., site preparation, planting, thinning and fertilizing) to be earning income from property, so that it would not have a specified investment business even with only one employee. However, it indicated that it was unclear whether this would be the result where the corporation was generating its revenues only from stumpage (i.e., was the stumpage income generated without significant related activity, or was it earned in accordance with the forest management plan, e.g., forest thinning?) and from the sale of carbon offset credits (was it simply refraining from cutting down trees or were there other activities involved, or to which this was incidental?)
CRA confirmed that if the principal purpose of the business was not to derive income from property, the corporation would not be considered to carry on a specified investment business.
Neal Armstrong. Summary of 3 September 2025 External T.I. 2024-1007671E5 under s. 125(7) – specified investment business.
Hypertec – Court of Quebec finds that expenses of a special committee formed to deal with a shareholder dispute were incurred to restore management operations and were currently deductible
As a result of an impasse in the boards of directors for the various companies in Hypertec group due to conflict between the two families owning the companies, the Louiselle family launched an oppression action against the Robert family and various companies within the group. The court then ordered the establishment of a special committee to address the group's financing needs. This committee then incurred expenses (the “Expenses”) of $1.3 million, including almost $1 million paid to PwC for an investigation of the group's finances and operations as mandated by the court order, with the balance paid as legal fees.
Fournier JCQ found that the ARQ had not pleaded at all the factual basis for denying the Expenses under the Quebec equivalent of s. 18(1)(b) and that this deficiency could not be cured by the Quebec equivalent of ITA s. 152(9).
However, Fournier JCQ went on to indicate obiter that the Expenses was not capital expenditures, stating:
[117] It is certain that any expenses aimed at resolving a deadlock in a company’s board of directors and/or better informing its shareholders are beneficial to the company and provide it with advantages that may even be enduring.
[118] However, that was not the intended result or purpose of the Expenses. These were rather incurred to restore a climate of trust and to respond to the requests of certain shareholders seeking accurate information to enable them to make the necessary decisions for the continuation of the company’s operations.
Neal Armstrong. Summaries of Hypertec Systèmes inc./Hypertec Systems Inc. v. Agence du revenu du Québec, 2025 QCCQ 6704 under s. 18(1)(a) – legal and professional fees, and s. 152(9).
CRA rules that a loan from a limited partnership to an indirect limited partner is a loan rather than a distribution
In order that “Parent,” a taxable Canadian corporation, can borrow on more favourable terms than if it did so directly:
- Parent will set up a bankruptcy-remote great-grandchild subsidiary limited partnership {“XX LP”) held through two intermediate stacked partnerships;
- through a series of transactions, Parent will transfer a business to XX LP on a rollover basis;
- XX LP will receive the loan from third-party lenders on commercial terms, including security on essentially all its assets; and
- XX LP will lend the proceeds on an unsecured basis to Parent at the same interest rate plus a nominal spread, with a right to defer interest payments, and with a matching maturity date.
CRA ruled inter alia that the proceeds of the loan to Parent will not be considered to be received by Parent on account of, in lieu of payment of, or in satisfaction of a distribution by XX LP or any of the intermediate partnerships for purposes of s. 53(2)(c)(v); and also provided a GAAR ruling.
The ruling letter referenced a legal opinion to the taxpayer that under the provincial partnership law [see, e.g., s. 12 of the Ontario Limited Partnerships Act), a limited partnership could make a loan to a limited partner. The CRA summary indicated that such loan is a loan under provincial law and that it is not an amount in lieu of a distribution because XX LP is a newly formed partnership with no income or capital prior to the proposed transactions.
Neal Armstrong. Summary of 2023 Ruling 2022-0938261R3 under s. 53(2)(c)(v).
Income Tax Severed Letters 19 Novemer 2025
This morning's release of three severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA indicates that the transfer of a registered plan investment to the controlling individual shortly before its becoming non-qualified is a swap transaction subject to non-refundable tax
Where the controlling individual of a registered plan becomes aware that a plan investment will become a non-qualified investment or a prohibited investment (a “bad investment”), can the individual acquire that investment from the trust before it becomes bad without incurring Part XI.01 tax – or, if there is such tax, could it be refunded under s. 207.04(4)?
CRA noted that such acquisition would be a swap transaction, i.e., generally, a transfer of property between the registered plan and the controlling individual. In particular, the exception under para. (c) of the definition of swap transaction, for where the individual is entitled to a refund under s. 207.04(4), would not apply to a transfer of an investment before it becomes bad.
The s. 207.04(4) refund would not be available since, before the time of the acquisition, which would be deemed under s. 207.01(6) to be immediately before the investment becoming bad, the controlling individual had been informed that the investment would become bad.
The Minister had the discretion to waive all or part of the 50% tax under s. 207.06(2) if it was just and equitable to do so, having regard to all the circumstances, including those listed in s. 207.06(2). No comment was made on whether such relief would be provided.
Neal Armstrong. Summary of 9 October 2025 APFF Financial Planning Roundtable, Q.13 under s. 207.04(4).
Neal H. Armstrong editor and contributor